CUBK's performance over FY20 so far, has been softer than anticipated on key fronts- asset quality and growth (excusable, given systemic trends). However, when we consider CUBK's track record and inherent strengths (strong credit filters, overall prudence and customer franchise) our outlook on CUBK's prospects remains unchanged. CUBKs 3QFY20 operating performance was slightly below estimates with slower business traction and a rise in slippages. NIM improvement and higher recoveries were the silver lining. Net Earnings were in line, assisted by lower tax provisions. Maintain BUY (TP Rs 262, 3x Dec-21E ABV).
JKIL achieved strong performance during 3QFY20. FY20/21E Rev guidance is maintained at Rs 32/36bn. Order book is robust at 2.55x FY20E Revenue. With strong execution visibility on current order book, JKIL is well placed for re-rating. At CMP JKIL trades at 4.8x FY21E EPS. We maintain BUY. Key risks (1) Geographic concentration (2) Order conversion within estimated timelines. JKIL delivered 1/(10)/(4)% 3QFY20 Rev/EBIDTA/APAT beat/(miss). We retain our FY20/21E Revenue estimates while revising FY20/21E APAT estimates by 0.4/(2.6)%. We maintain BUY on JKIL with a TP of Rs 269/sh (vs. Rs 276/sh earlier, 8x Mar-21E EPS).
ITD 3QFY20 performance was subpar as new projects worth Rs 60bn are in initial stages of mobilization. ITD is likely to deliver strong execution from 2QFY21. Debt is expected to stabilize at current levels of Rs 4.5bn. Bid pipeline is strong and dominated by high margin marine projects. ITD has bid for Rs 35bn JNPT marine project, final outcome expected by Mar-20. Stressed projects like Bengaluru Metro are nearing completion. We believe multiple tailwinds are in place. We maintain BUY. Key risks (1) High competitive intensity in marine segment with competition from L&T, (2) Sustained cost overruns in projects, and (3) BS and NWC deterioration. ITDs 3Q/9MFY20 order inflows have been robust at Rs 26/56bn ex Rs 3.5bn L1. Kolkata HC has given green signal to stuck Kolkata metro and ITD maintains no write offs in this project. We maintain BUY on ITD with TP of Rs 80/sh (12x Mar-21E EPS).
GICRE is India's largest reinsurer but continues to make high underwriting losses (9M COR: 116%). While price hikes in property will improve underwriting profits, high proportion of crop business will add to volatility. We estimate an FY22E adj. RoE at 9.9%, and thus value GICRE at 0.9x Dec-21E ABV less 5% discount. We rate GICRE a NEUTRAL with a TP of Rs 264. Higher losses in agriculture and property led to increased claims ratio i.e. 107.0%, +2,379/-274bps YoY/QoQ; this resulted in highest (since listing) underwriting losses of Rs 27.4bn. 3QFY20 reported loss was at Rs 10.4bn!
BSE cash market share has slipped to 6.4% vs ~13/9% in FY18/19 and currency derivative segment is also facing tough competition. Investments in INX and newer initiatives (commodity & Insurance distribution) have impacted EBITDA margins (1.1% in 9MFY20, down ~7% YoY). We expect revenue growth of 12.0/10.4% in FY21/22E led by rebound in transaction revenue (better market condition, StAR MF and INX contribution). We expect operating leverage to play out with growth (EBITDA margin of 8.8/14.2% for FY21/22E). BSE has net cash of Rs ~20bn (~77% of MCap) and a dividend yield of ~5%, which limits downside. Risks include rise in competition, loss of market share and increase in investments. We maintain NEU on BSE based on revenue and margin miss in 3QFY20. The core revenue stream is under pressure, margin is in the negative territory due to ongoing investments in new initiatives (INX). BSE cash market share has declined to 6.4% but StAR MF platform is witnessing continued traction. We arrive at a SoTP based TP of Rs 590 by assigning 15x multiple to core Dec-21E PAT (Rs 46/sh), Rs 105/sh for the CDSL stake and adding net cash (Rs 439/sh).
Hexaware's low-double digit organic growth trajectory is sustainable supported by (1) IMS/BPM-led differentiation and wins, (2) Cross-sell opportunities from Mobiquity (3 wins in 2HCY19), (3) Strengthening partner ecosystem (Guidewire, Pega, Adobe, AWS, Backbase), and (4) Increased focus to accelerate NN wins and lower client concentration risks (vs. earlier). The risk of intermittent volatility in large accounts is lower now (T10 lowered from 57% of rev to 43% over the past 3 yrs). Expect USD rev/EPS growth at 13.5/12.0% CAGR over CY19-21E. We maintain BUY on Hexaware post its in-line revenue performance. EPS cut (~4%) on margins reset (-60bps). IMS/BPM differentiation/growth leadership, Mobiquity downstream, increased focus on NN wins and strengthening partner ecosystem to support 13.5/12% rev/EPS CAGR. Our TP of Rs 430 is based on 16x Dec-21E EPS (3-5yr avg at 16.5x).
Given the brand equity of AFL's power brands (60% of sales), a recovery in this segment is a foregone conclusion. This coupled with multiple margin levers and an increasingly lighter expansion strategy should ensure AFL's return profile has a U-shaped recovery. (6.3% by FY22 vs -3.7% in FY20E). We remain circumspect on the value fashion play though, given AFL's lack of execution history. Valuations at <1x FY20E Power brand sales seem undemanding. While we maintain our estimates, a DCF-roll-over to FY22 leads to a marginal revision in TP to Rs. 460/sh (earlier Rs. 450), implying 11x F22 EV/EBITDA). Reiterate BUY. Near double-digit (-9.8%) top-line de-growth was par for the course for Arvind Fashion (AFL) as FY20 is all about 1. fixing working capital woes in brands biz via reducing reliance on long-credit cycle accounts (MBOs), 2. Reining in losses of the value fashion play Unlimited. 3). Non-core brand exits.
SIL 1QFY20 start is weak on back of muted public/private capex. EBIDTA margin expansion was a positive surprise. Growth headwinds remain with limited visibility on Infrastructure ordering. Tight liquidity environment makes it further challenging to maintain NWC. Whilst ex GP (highly cyclical), less cyclical segments like Digital Industries & Mobility continue to see traction, large ordering is still awaited. While Mobility business sale was earlier put on hold we await clarity on highest revenue contributing segment-Power & Gas. Exports segment is also stagnant owing to weak global demand. We maintain NEU. Key risks (1) Delays in Government capex recovery, (2) Slowdown in private investments, (3) INR depreciation, and (4) Any adverse corporate action. Slowdown in capex and delayed customer off-take has resulted in a muted 1QFY20 Rev performance. SIL delivered Rev/EBIDTA/APAT beat/(miss) of (12)/3/(4)%. Our FY20/21E EPS is unchanged. Maintain NEU on Siemens India Ltd. (SIL) with a TP of Rs 1,463/sh.
JMC delivered robust 9MFY20 standalone Rev/APAT growth of 19.8/21.4% driven by 51% YoY growth in Infra segment. JMC is on track to deliver 15-20% growth in FY20. Slow order intake and weak real estate demand may impact B&F order book as clients will delay/defer projects. This shall cloud FY21E growth to sub 10%. Besides, Rs 900mn FY20 BOT loss funding/debt servicing is a dampener. Likely restructuring in two BOT assets during 4QFY20 or early 1QFY21 is a positive development and will reduce the equity infusion by the company towards loss funding and debt repayment by Rs 400mn/annum. Order book accretion of Rs 33.6bn YTDFY20E is muted, largely driven by B&F segment. We expect JMC to clock 13.1% revenue CAGR over FY19-21E. We will closely monitor the progress on BOT assets monetization and performance in 4QFY20. Key risks (1) Delay in monetization/resolution of BOT assets (2) Leverage. We maintain BUY on JMC, with a TP of Rs 162/sh (vs Rs 175/sh earlier). During 3QFY20 JMC delivered Rev/EBIDTA/APAT miss of 6/2/5% vs our estimates. We continue to value EPC business at 15x Mar-21 EPS. We have reduced our EPS estimates for FY20E/21E by 3.5/8% respectively.
After 3 quarters of muted Rs 4bn revenue runrate, CIL is returning back to growth path. With Govt order book (49% in mix) moving into execution from 4QFY20, CIL will start delivering strong execution. EBIDTA margin expansion of 100-150bps may play out as number of sites is coming down and average order value is going up. Gross debt is stable at Rs 2.8bn though CIL needs to bring down unbilled revenue. We Maintain BUY. Key risks (1) Slowdown in real estate (2) Delay in debtors recovery & (3) Slowdown in Government Capex. Capacite Infraprojects Ltd (CIL) delivered Rev/EBIDTA/PAT beat of (1.2)/9.8/8% respectively. Despite this, headlines numbers remain weak, resulting in 15/3/5% cut to our FY20E Rev/EBIDTA/APAT estimate. We believe 3QFY20 execution has bottomed and recovery is expected from 4QFY20. We maintain BUY on CIL with an increased TP of Rs 360/sh (12.8x FY21E EPS).
